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A bold move by William Hill. This is the sort of move I have been crying out for as William Hill lurched from one online disaster to another. The appointment of ex-LNG CEO Henry Birch as CEO is either a stroke of genius or the precursor to another disaster.

One has to ask whether the William Hill interview team or their head hunters looked at how Henry Birch handled things at LNG. I suspect if they were to have asked a number of the larger LNG shareholders for a reference it would not make for pretty reading.

The CEO issue aside, the Playtech agreement is a bold one and transforms William Hills moribund offering into something resembling a professional and high quality offering. This is also good news for Playtech. The share prices of both companies responding positively with Hills up 20% in early trades and PTEC up 5%.

Here are the highlights. To truly understand the intricacies of this deal one needs to read the highlights through more than once. I will comment more when I have digested the real deal behind these headlines.

Highlights:
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William Hill software licence agreement

* Playtech is to supply William Hill Online with casino, poker and other gaming
software products (the "William Hill Online Licence") on a phased basis commencing January 2009 and culminating in an exclusive relationship for casino and poker from 1 January 2010.

The William Hill Online Licence will run for a minimum of five years

Acquisition of businesses and assets of affiliates and other third parties

* Playtech is to acquire certain online gaming marketing assets, businesses and
contracts (the "Purchased Assets") from affiliates and other third parties for a total consideration of up to $250 million (c. £144.5m) in cash from existing resources (the "Acquisition")

* For the six months to 30 June 2008, the Purchased Assets generated combined revenues of $51.4m (c. £26.0m) and net earnings of $10.4m (c. £5.3m). These net earnings are growing rapidly and the current annualised net earnings run rate for the Purchased Assets is c. $31.0m (c. £17.9m)

Immediate sale to William Hill

* Playtech will immediately sell the majority of the Purchased Assets to William Hill
in return for a 29 per cent. interest in William Hill's enlarged online operation ("William Hill Online"). Playtech's interest in William Hill Online can increase to 32 per cent. depending on certain conditions relating to the integration

* William Hill retains a right to buy out Playtech's interests in William Hill Online
after four and six years on an independent fair value basis

* William Hill will continue to control and operate William Hill Online
* William Hill's pro forma 2008 estimates for the enlarged William Hill Online
business announced today: net revenues of c. $328.7m (£190.0m) and EBITA of c. $129.8m (£75.0m)

Financial effects for Playtech

* Playtech's Board believes this series of transactions, which are expected to
complete in full in January 2009, will be significantly earnings enhancing from January 2009 when Playtech will receive:

* licence income under the terms of the William Hill Online Licence; plus

* a 29 per cent. share of William Hill Online's profits, a significant amount of which is expected to be distributed. This 29 per cent. interest was determined on the basis of the contribution of the Purchased Assets to William Hill's enlarged online operation and reflecting a reduction in revenues currently generated by Playtech from certain of the Purchased Assets

* Playtech's Board also believes there is the potential to make a significant future
capital gain if William Hill Online is successful and if William Hill exercises its buy out rights in relation to Playtech's interest

On the flip side, this is another blow to Cypotologic. I have posted on here numerous times that the Cryptologic software is not up to the job and I would not be surprised to see other licence holders leave. The share price reflects this demise. This is a case of not reacting fast enough to the market. I suspect an element of complacency from the top management on this issue. The share price was £10 in May and is now around the £2 level. The share price peaked at over £14 in April of 2007.

The question we must now ask is whether William Hill over paid. They were desperate and there is a limit to the number of bed partners out there. I suspect, given the current climate, that this is a reasonable deal for both parties. I have some worries over the quality of the affiliates that have been bought out and I suspect there will be an element of under performance from these assets over the next couple of years.

This deal might yet come back to bite William Hill on the ass. With Henry Birch in charge anything could happen. We will keep a close eye on this one.

Given William Hill had possibly the worst Affiliate scheme I have ever come across using Deal Group as a middle man I hope this is something that will be addressed by this new deal.

NetBetBlog are always ready to help.

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